When selling, one has to decide: one buyer or 100?

Charlie Crowley is a managing director at Boenning & Scattergood. His investment banking practice is focused on helping banks to raise capital and complete M&A transactions.

When we are discussing the sale of a company with a client, inevitably there is a discussion about the best approach.Selling a company is different than selling a piece of real estate. If for some reason the sale doesn’t take place (an unsatisfactory offer price, etc.), the CEO doesn’t want employees, customers or shareholders to get rattled.Because of that desire to keep things quiet, there may be a tendency to limit the prospective universe to one party, or to no more than a handful. The problem with that is that it tends to counteract the basic law of supply and demand. Presumably, the more buyers you solicit, the better the chances for a high price. So the question is: one or 100? Well, it depends. You need good lawyers and investment bankers to guide you. Over the years, we have had deals in which all of the objectives (including a high sales price) were met by pursuing a negotiated deal with one particular party. We have had other situations in which we have gone to well more than 100 buyers or investors, which was necessary to get the deal done.If you have a very attractive company and favorable market conditions, you may be able to focus narrowly on one particular buyer. That buyer can be given an opportunity for a preemptive strike (i.e., an attractive offer that will eliminate the seller’s desire to shop). Sometimes it works out, and shareholders can receive a deal comparable to what they might have received by running a more extensive controlled auction process. One advantage of this approach is confidentiality — there is certainly a lower possibility of “loose lips.” Another possible advantage of this approach is that the seller may get favorable treatment on “social issues,” such as a continuing role in the organization. There is always the implied possibility of going to a wider universe if the first party doesn’t offer an adequate price. The seller is not giving up the right to shop more broadly until the definitive agreement is signed.There are disadvantages to the negotiated deal approach.You only sell your company once. Even if the first prospective buyer makes a great offer, you may have a nagging sense that you are leaving millions on the table by considering just one prospective buyer. Also, a public company would generally have a difficult time justifying the sale of the company to one buyer in an all-cash deal (ask your attorney about “Revlon duties,” “go shop provisions,” etc.). Finally, sometimes, negotiated deals can drag on endlessly. The parties feel that the buyer has the big checkbook and can dictate timing. Thus, sometimes the seller is forced to endure a frustrating waiting game. Why shop more widely? Perhaps the seller is not concerned about confidentiality and just wants the best price. Perhaps the seller does not know if it wants to sell all or a part of the company. Therefore, it will want to talk to a number of strategic buyers as well as private equity buyers. Perhaps the seller is somewhat troubled and has a concern that there will be limited interest.An advantage of a controlled auction process is that the seller gets to see market forces at work. Out of a universe of prospective buyers (whether 10 or 100), a subset will execute a confidentiality agreement and review additional information. Then a smaller number will submit an indication of interest, subject to due diligence. Following diligence, final bids are received. In the end, whether you are selling a company or selling consumer goods, the market price is what a willing buyer will pay a willing seller, and this sort of process tends to yield the best price. As noted previously, you may not always want to go to a large universe. In many cases, though, the best chance of success is starting with a universe of prospective partners that your investment bankers and you believe to be viable candidates.Some will take themselves out of the running, and you can subsequently remove others because of an inadequate price or other factors. No matter how many you start with, the goal is to get to one good buyer that can complete the deal you would like.

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